2016 (9) TMI 1152 - AT - Income Tax

Treatment to loss on shares - bogus loss - the broker of KSE was suspended - Genuineness of transaction doubted - failure to produce books - Held that - The transactions were complete in terms of documentation and there was no defect in the papers submitted by the assessee in support of the transactions. We also find that there were entries for the sale purchase of the shares in the bank statements, contract notes, dmat account of the assessee. In our considered view we find that the assessee has proved the transaction on the basis of documents and therefore the suspension of the broker by SEBI will not hold the transaction invalid. See Commissioner of Income Tax vs. Korlay Trading Co. Ltd. 1998 (2) TMI 104 - CALCUTTA High Court In the instant case, ld. DR has not brought any defect with respect to the transactions of the sale & purchase of the shares but just mentioned that the broker through whom the transactions were made was suspended. We also find that the broker was not suspended during the period, when the transactions for sale & purchase of the shares taken place. The ld. DR has also not brought on record the reasons for which the broker was suspended. In view of above, we are inclined to reverse the order of authorities below - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of short term capital loss by Assessing Officer and CIT(A).
2. Treatment of short term capital loss as bogus loss.

Analysis:
1. The appeal was against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of short term capital loss of ?56,81,304 by the Assessing Officer. The grounds raised by the assessee challenged the arbitrary and illegal nature of the orders. The main issue was the confirmation of the disallowance based on SEBI's actions against the stockbroker and companies involved in the transactions. The Kolkata Stock Exchange was unable to provide details verifying the transactions, leading to the disallowance of the claimed loss.

2. The facts revealed that the assessee, a Private Limited Company, had incurred a loss from trading in shares of various companies. The Assessing Officer deemed the loss as bogus due to SEBI's ban on trading with specific companies and the suspension of the broker facilitating the transactions. The CIT(A) upheld this decision, considering the decline in share prices and the broker's failure to provide necessary details. The CIT(A) concluded that the transactions were a colorable device to evade taxes, leading to the disallowance of the claimed loss.

3. In the second appeal, the assessee presented evidence supporting the genuineness of the transactions, including contract notes, bank statements, and demat account details. The contention was that the suspension of the broker occurred after the transactions were completed, and all necessary documentation was in order. The Tribunal found that the transactions were adequately supported by documents, and the suspension of the broker did not invalidate the transactions. Citing a relevant judgment, the Tribunal noted that the absence of the broker's books did not negate the genuineness of the transactions. As the authorities failed to provide evidence to doubt the transactions' authenticity, the Tribunal allowed the appeal, reversing the lower authorities' decision.

4. The Tribunal emphasized that the suspension of the broker during a later period did not undermine the validity of the transactions completed earlier. Without concrete evidence to dispute the transactions' authenticity, the disallowance of the claimed loss was deemed unjustified. Therefore, the Tribunal allowed the appeal, highlighting the importance of substantiating claims with proper documentation and evidence to establish the genuineness of transactions in such cases.